The household debt-to-gross domestic product (GDP) ratio increased to 89.1% last year but the ability to service debt remains sound, said Bank Negara.

“This continued to be supported by a broadly stable domestic employment and income outlook,” said the central bank in its Financial Stability and Payment Systems Report 2015.

The share of borrowings by households with incomes of less than RM3,000 a month dropped to 23.6% of total household debt from 24.3% in 2014 and 28.4% in 2013.

The aggregate leverage, a measurement of debt to annual income, for households in that group has been hovering around seven times since macroprudential measures were implemented, and a moderation in the level of indebtedness will likely be gradual, given the long average remaining maturity of household debt, which is about nine years.

Households that are highly leveraged have more than half of their loans in fixed-rate financing, which reduced the sensitivities to changes in financing cost.

The leverage levels of higher-income groups have remained stable at three times.

Bank Negara said household balance sheets remained healthy as financial assets grew faster than debt in 2015. Financial assets of households grew by RM97.9bil last year, compared with an increase of RM70.4bil in debt.

Deposits and deposit-like instruments were the main form of financial assets for households. In dealing with higher living costs, households have been dipping into money that would have gone into savings or unit trusts, which resulted in deposit growth growing by 4.8% last year.

“A further reason for the moderate increase in household financial assets was the sustained demand for housing, including first-time house buyers, against a backdrop of elevated house prices,” said the report.

“Household wealth is estimated to have risen by a compounded annual growth rate of about 11% over the past five years as more households look to investments in properties to help finance children’s education, provide some financial security for the next generation and prepare for retirement, including medical costs.”

The household assets-to-debt ratio remained above two times, indicating continued resilience. The household liquid assets-to-debt ratio has remained in excess of 1.4 times, preserving ready access to funds for households to meet debt obligations.

Bank Negara said the risk to the domestic financial stability from household leverage was being mitigated by sound underwriting standards and risk management of banks, which accounted for 80% of financing to households.

The average lending rates for banks in 2015 was 5.1%, compared with 4.9% in 2014.

Supervision over lending by non-banks has led to a decrease in the amount of personal loans granted by such institutions, rising by RM3bil, compared with RM4.4bil in 2014 and RM10.2bil in 2013.

The average financing amount disbursed also declined to RM22,000, compared with levels as high as RM68,000 previously.

The Credit Counselling and Debt Management Agency provided counselling to over 80,000 people last year and enrolment in its debt management programme was maintained.Half of those seeking help to manage their debt were borrowers earning less than RM3,000 a month."